Texas hospitals may be banding together in ever bigger systems to fight managed care. But a hospital system that grows too big too fast may be shooting itself in the foot.
East Texas Medical Center Regional Healthcare System, a Tyler-based 14-hospital system with its own managed-care plan, lost $5.5 million in fiscal 1998 on revenues of $481 million, said Chief Financial Officer Byron Hale.
Its 18,600-enrollee Healthfirst HMO lost $2 million on $22.3 million in premium revenues in the first three quarters of last year.
And earlier this month, Moody's Investors Service downgraded its rating on the system to B3 from Baa3. The new "junk" debt rating, affecting $233.2 million of debt, marked a six-notch drop.
In its report, Moody's cited "extremely precarious" financial performance, "extremely weak" liquidity, and a "very weak legal structure" supporting the system's debts.
Although Hale acknowledged that ETMC lost money last year, he said he expects the system to bounce back to a 4% profit margin by mid-1999.
He said the system had simply grown too fast.
"We doubled in size in the last five years," Hale said, "And we reached a point last year where the systems we had could not accommodate the volume."
The system signed three new leases with rural hospitals last year, he said.
According to the Moody's report, ETMC had to write off $15 million to $16 million in uncollectible receivables last year. The system has corrected the billing problem, Hale said.
ETMC also is slimming down, closing home-health agencies, rural clinics and other noncore services. So far the system has implemented $24 million of $30 million in planned cuts, said Mike Thomas, the system's vice president of marketing.
Thomas refused to say how many employees had lost their jobs as a result of the cuts.
According to Moody's analyst Lisa Goldstein, the system's debt is guaranteed solely by the parent company. All but one of the system's hospitals are leased and are not legally responsible should the parent default on its debt.
ETMC also has only 11 days' cash on hand, compared with a national median of 151, Goldstein said. That number has since been increased to 22, Hale said.
ETMC's flagship hospital, East Texas Medical Center Tyler, posted an 8.5% profit margin in 1997, according to data from HCIA, a Baltimore-based healthcare information company. It was also named one of the nation's top 100 hospitals in a yearly survey published in MODERN HEALTHCARE (Dec. 7, 1998, p. 38).